Mining News

Mining Exploration Cooling Down Under

Recent data released from the Australian Bureau of Statistics (ABS) shows Australian mining investment is moving in a downward trend. Total exploration spending for Australia fell 6.1 percent to $395 million in the first quarter of 2015, compared to the same period in 2014 where spending was at $487.7 million.

First quarter exploration spending is the lowest it has been since 2006, when exploration investment sat at $380 million.

During the first quarter of 2015, iron ore exploration spending dropped $63 million – a decline of 76 percent since 2012. Spending on coal exploration was reported to be down more than $34 million (the second largest decrease by commodity).

This downward trend is partially due to plummeting commodity prices. As prices go down, it becomes less economical for exploration and production to take place.

An additional consideration is China’s slowing growth. Once one of the major importers of Australian minerals for expansionary purposes, China now has adopted an environmental agenda that is reducing some of their mineral needs and demand, specifically with coal.

Further examples of the downward trend in the first quarter of 2015 include Western Australia where exploration investment dropped by $30 million, or 12 percent in iron ore. In addition, New South Wales’ investment in coal exploration halved during the first quarter to $9.9 million. Industry experts are warning that, if sustained long term, this slump in investment could be detrimental to the mining industry’s long term sustainability in Australia.

Will this have a negative impact?

Exploration is the lifeblood of the mining industry. It provides the starting platform for the producing and functioning mines that we see in operation today.

The life cycle of a mine is lengthy, with only a small percentage of potential mines, up to only around 4 percent, getting through the exploration stage, and even fewer turn into a producing mine. Thus, the exploration phase must involve a large number of potential sites in order to increase the probability that new mines will be established by the end of the development process. If the decline in exploration spending continues, fewer producing mines may exist in the coming next decade.

There are also employment considerations. Contractors may find themselves out of work, and potentially seeking new professional vocations, as a growing pool of labour vies for the few remaining Australian mining jobs.

Looking to the Fraser Institute’s 2014 Survey on Mining Companies, figures indicate that perceptions of the policy environment may be contributing to the slowdown down under. Survey results show a three percent decrease in the average investment attractiveness index score, which accounts for both policy and mineral potential, for Australia’s states down from an average regional score in 2013 of 70 to 68 in 2014. Of the seven jurisdictions considered in the study, Western Australia has the highest ranking in the country, with an investment attractiveness score of 82 and rank of 5/122 jurisdictions.

Comparably, in the Australian state Victoria, their 2014 investment attractiveness score was at 51, with a ranking 66/122 jurisdictions, the lowest ranking Australian jurisdiction.

New South Wales, Northern Territory, Queensland, South Australia and Tasmania range in scores from 59 to 75 and rank between 19th to 51st of the 122 jurisdictions.

This is considerable, as 2013 figures represent the range in scores being higher, with the lowest in the region at 60 and the highest at 85. This shows a 15 percent decrease in investment attractiveness in the lowest scoring state, and a 4 percent decrease in the regions highest scoring state.

Rankings in 2013 also differed. Western Australia was ranked more favorably at 1/112 jurisdictions, and Victoria as well, with a rank of 43/112. The range in ranking for the other five states was also considerably better, starting at 17th to 39th out of the 112 jurisdictions.

The data represents a clear drop in investment attractiveness for Australian states in the survey. Perhaps this follows the trend of low spending that is infiltrating the region.

With these industry conditions in mind, it is unclear how the Australian mining industry will fare in coming years.